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June 16, 2021 Seminar





Does Better Access to Finance Help Firms Deal with COVID-19 Pandemic?
Evidence from Firm-level Survey Data

Mohammad Amin and Domenico Viganola


Mohammad Amin
Senior Economist, World Bank Group Enterprise Analysis


Wednesday, June 16, 2021
10:00 AM – 11:00 AM (Washington DC time)



Link to paper

The advent of the novel coronavirus (COVID-19) pandemic has led to a severe liquidity crunch among private firms. Yet, formal analysis of the impact of liquidity crunch or access to finance on the performance of firms during the pandemic is limited. The present paper attempts to fill this gap in the literature by estimating the impact of access to finance in the period before the pandemic on the likelihood of a decline in sales of the firm during the pandemic. Our results show a strong connection between the two. Firms with better access to finance are significantly less likely to experience a decline in sales. The same holds for the percentage decline (intensive margin) in sales. We provide several endogeneity checks including testing for mechanisms through which access to finance affects firm performance. For instance, we argue that access to finance is likely to benefit more firms that have stronger long-standing relationships with their stakeholders such as skilled workers and inputs suppliers. Consistent with this view, we find that better access to finance reduces the likelihood of a decline in sales much more for firms that tend to use more skilled workers, for industries with a more complex network of inputs suppliers, and in countries where the cost of enforcing contracts with potentially new inputs suppliers is high. We also predict that access to finance is less effective in preventing production cuts when workers are unwilling or unable to work. This effect is stronger with female workers than male workers, and especially so in countries or societies that accord a higher value to women’s caregiving role than to her work outside home. Both these predictions are confirmed in the data.

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